U.S. Stocks Rise Amid Speculation Central Banks May Act

By Rita Nazareth - Jun 16, 2012 3:45 AM GMT+0700

U.S. stocks rose, giving the Standard & Poor’s 500 Index its first back-to-back weekly rally since April, on speculation central banks will act to boost the economy as investors awaited Greek elections this weekend.

Microsoft Corp. (MSFT) gained 2.3 percent as a person familiar with the matter said the company will announce plans next week to sell a tablet computer running the next version of Windows. IntercontinentalExchange Inc. added 4.7 percent as its bid for the London Metal Exchange was rejected in favor of Hong Kong Exchanges & Clearing Ltd.’s offer. Facebook Inc. (FB) jumped 6.1 percent and capped the first weekly gain since it went public.

The S&P 500 rose 1 percent to 1,342.84 at 4 p.m. New York time, the highest since May 11. The Dow Jones Industrial Average climbed 115.26 points, or 0.9 percent, to 12,767.17. Trading volume for exchange-listed stocks in the U.S. was about 7.5 billion shares, 11 percent above the three-month average.

“Ahead of Sunday’s election in Greece, central bankers stand ready,” Peter Boockvar, equity strategist at Miller Tabak & Co. in New York, wrote today. “With all the water central banks have expended out of their fire hoses in their attempt to ‘do something,’ I can only think of magic candles. Those candles you blow out that only flare up again immediately after.”

Expectations for global policy action grew as central banks intensified warnings that Europe’s failure to tame its crisis threatens the economy. European Central Bank policy makers have overcome a key concern about taking the benchmark rate below 1 percent, two euro-area central bank officials said. The June 17 vote will turn on whether Greeks accept open-ended austerity to stay in the euro or reject the conditions of a bailout and risk becoming the first to exit the 17-member currency.

Fed Action

Stocks also rose on speculation the Federal Reserve may join central banks in taking steps to boost growth. Data today showed that industrial production unexpectedly fell and consumer confidence slid, adding to evidence of U.S. economic weakness. U.S. policy makers meet June 19-20.

“There’s hope of some coordinated action if bad news does occur,” said Tim Ghriskey, who oversees about $2 billion as chief investment officer of Solaris Group in Bedford Hills, New York. He spoke in a telephone interview. “There’s the Greek election. It could be an ongoing process.”

David Bianco, Deutsche Bank AG’s chief U.S. equity strategist, withdrew a forecast that the S&P 500 (SPX) will post a near-term gain of 5 percent or more, citing uncertainty before Greece’s elections. While Bianco maintained his year-end projection of 1,475 for the index, he said he’s no longer convinced the next 5 percent move in the gauge is higher.

Least-Tied

Concern about Europe’s debt crisis and a global slowdown put the S&P 500 on the brink of a so-called correction this month. It fell 9.9 percent from an almost four-year high in April through
June 1. Since then, the lowest valuation in six months and bets on policy action drove the gauge up 5.1 percent. The S&P 500 rose 1.3 percent this week.

All 10 groups in the S&P 500 rose today as energy and technology shares had the biggest rallies. Chevron Corp. (CVX), the second-largest U.S. energy company, added 2.4 percent to $104.33. Oracle Corp. (ORCL), the biggest maker of database software, added 2.9 percent to $27.70 after ThinkEquity LLC recommended buying the shares.

Microsoft jumped 2.3 percent to $30.02. The company may demonstrate the tablet computer at an event scheduled in Los Angeles on June 18, said a person familiar with the plans. The company has said it aims to release the new Windows 8 operating system in time for the holiday season. Frank Shaw, a spokesman for Microsoft, declined to comment.

Bidding Process

IntercontinentalExchange, the second-largest U.S. futures market, rallied 4.7 percent to $134.80. ICE (ICE) and Hong Kong Exchanges were the two parties left in a bidding process announced by the LME in September. The LME said today it would no longer be seeking competing takeover offers.

Facebook rose 6.1 percent to $30.01, extending its weekly advance to 11 percent. The company asked a court to consolidate more than 40 shareholder lawsuits over its initial public offering last month. Investors sued Facebook and Nasdaq OMX Group Inc. over problems in trading company shares on May 18, the first day they were publicly available.

Navistar International Corp. (NAV) soared 7.6 percent to $29.95. MHR Fund Management LLC disclosed a 13.6 percent stake in the truckmaker, more than billionaire investor Carl Icahn’s 11.9 percent holding. MHR is run by Mark Rachesky, a former protege of Icahn’s. MHR “may seek to engage in discussions with management,” according to a regulatory filing.

Financial Shares

Financial shares in the S&P 500 advanced 1.4 percent. Bank of America Corp. (BAC) added 3.1 percent to $7.90, after slumping as much as 1.4 percent earlier today.

David Trone, an analyst at JMP Securities LLC, expects some of the largest financial institutions to underperform as recent developments in Europe increase concern the region will experience “significant” damage.

SAIC Inc. (SAI) jumped 5.1 percent to $12.24. The defense contractor specializing in computer services was raised to overweight from neutral at JPMorgan Chase & Co.

The Bloomberg U.S. Airlines Index (BUSAIRL) of 10 stocks slumped 2.2 percent. AMR Corp. Chief Executive Officer Tom Horton asked an ad hoc bondholder group to study his plan for a stand-alone American Airlines before reviewing a possible merger for the bankrupt carrier, two people familiar with the matter said. Horton expressed frustration with attention being given to a pending US Airways Group Inc. (LCC) merger bid, the people said.

US Airways

US Airways tumbled 3.6 percent to $12.03. Southwest Airlines Co. (LUV) dropped 2.9 percent to $8.93.

Any multiyear rally in U.S. stocks may depend on a signal that the bond market has yet to send, according to Michael Hartnett, Bank of America’s chief global equity strategist.

Bond yields have to reach “an inflection point” before shares can move into what’s known as a secular bull market if history is any guide, Hartnett wrote this week.

Hartnett highlighted three inflection points in the past century that foreshadowed stock-market booms during the 1920s, after World War II, and throughout most of the 1980s and 1990s.

A comparable surge in share prices is unlikely, he wrote, “until Treasury yields rise in response to stronger growth and a healthier global economy.” The 10-year yield fell to a record 1.4387 percent this month.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net